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advice for live + online play and prepping vs IRS?

filimaica Posts: 35Subscriber
Hello, I live in Ohio and, for my household's situation, am happy with my decisions at the table and some of my results at the table. I have a full-time job (healthcare) which I intend to keep working, but treat poker as a "semi-pro" second job which supports our household budget. I intend to file both my healthcare and poker income in a tax return this coming year. I have a good accountant who is already aware of this intention of mine, and is comfortable filing both income streams.

The reason I'm posting today is that I would like to incorporate online play as well. Only reason for the desire for online play is the relatively smaller buy-ins for relatively larger prize pools, nothing more. I prefer to play cash live. Does anyone here have experience dealing with the IRS when it comes to live and online income? Any challenges I should be aware of before I jump into online tracking and filing? Do you track your records for online bankroll and play differently than you would live? Any other pointers? Thanks for your time and attention.

Comments

  • BartBart Posts: 6,077AdministratorLeadPro
    Tracking your online poker records is basically the same as tracking live records. Keep a detailed log of your daily wins and losses. If you are specifically talking about tournies than its just a matter of buyins and cashes. Its really not all that hard.

    Another thing to note is that most "accountants" no NOTHING about gambling taxation..I would recommend emailing a guy like Russ Fox and using him your your gambling filing. A run of the mill accountant is not going to know answers to your specific questions.. rcfox@claytontax.com

    Bart

  • stayinschool Posts: 2,969Subscriber
    Most online sits keep a record of your tourney buy-ins and cash outs too so shouldn't be a huge problem.
  • BananaStandBananaStand Posts: 1,455Troll
    I don't maintain a CPA license, but I do have an accounting degree, so maybe I can add some advice here.

    I think most 'run of the mill' accountants can handle this. I think where it gets complicated is when you're playing for a living, travelling, making money in different states, etc. etc. I'd be curious to know if a rec player claiming his poker income can also deduct his travel, food, and lodging expenses while playing. But then that leads to a bigger question....if you use casino comps to pay for those things....is that income?

    Personally, I'd avoid including online results on my tax returns. You're already working full time, you're already playing live as a hobby. How much do you really think you can make online? It doesn't sound like you've started playing yet. Do you even know if you'll be a winning player?

    I'm not sure what site you play on, but almost all of them are illegal in the US. I don't think it's wise to be listing illegal activities on your tax return. You can ask your accountant about this, but regardless of what he says, I would strongly encourage you to get a second opinion from a tax attorney
  • the_dude_abides Posts: 331Subscriber
    Pretty sure that if you search the site, you will find a podcast on this topic.
  • BartBart Posts: 6,077AdministratorLeadPro
    edited July 2016
    BananaStand said:
    I don't maintain a CPA license, but I do have an accounting degree, so maybe I can add some advice here.

    I think most 'run of the mill' accountants can handle this. I think where it gets complicated is when you're playing for a living, travelling, making money in different states, etc. etc. I'd be curious to know if a rec player claiming his poker income can also deduct his travel, food, and lodging expenses while playing. But then that leads to a bigger question....if you use casino comps to pay for those things....is that income?

    Personally, I'd avoid including online results on my tax returns. You're already working full time, you're already playing live as a hobby. How much do you really think you can make online? It doesn't sound like you've started playing yet. Do you even know if you'll be a winning player?

    I'm not sure what site you play on, but almost all of them are illegal in the US. I don't think it's wise to be listing illegal activities on your tax return. You can ask your accountant about this, but regardless of what he says, I would strongly encourage you to get a second opinion from a tax attorney
    Almost everything in the post above is inaccurate and bad advice.

    This makes me wonder about the "confidence" you do put into your subjective view of hands and how you tend to trash other people's opinions.

    Bart
  • BananaStandBananaStand Posts: 1,455Troll
    Bart said:


    Almost everything in the post above is inaccurate and bad advice.
    Like what?
  • BartBart Posts: 6,077AdministratorLeadPro
    BananaStand said:
    Bart said:


    Almost everything in the post above is inaccurate and bad advice.
    Like what?
    1. Most "run of the mill accountants" no nothing about gambling taxation. You need to go to someone that is familiar with the rules of how to file as a recreational and or professional gambler. Over the past 10 years I've talked to at least 3 non specialized accountants they have given me the wrong advice or flat out don't know.

    2. You cant deduct business expenses like travel and food when you don't file a schedule C as a professional gambler.

    3. Your basically recommending to hide income from the IRS and misfile a tax return. Thats illegal and not good advice.

    4. The act of playing on a site that is not licensed in the US is not a crime (except in WA and Nevada).

    ALso this:

    http://money.cnn.com/2013/02/28/news/economy/illegal-income-tax/
  • BananaStandBananaStand Posts: 1,455Troll
    edited July 2016
    1. What do you even mean by a "run of the mill" accountant? There is no such thing as a degree in taxation. An accounting degree is an accounting degree. They don't give you one of those unless you know how to prepare a tax return for a blind widowed veteran with sixteen dependents, inherited a farm, and lost a fishing boat in a fire (you would not believe the fucked up tax loopholes there are around fishing boats). We all know what to do with gambling income. It was on the test.

    I understand you wanna plug your buddy. No issue there. And I get that there may be some obscure stuff that would be more apparent to someone like Russ who does this often. But in reality, just like lawyers, accountants have access to online databases, and networks of experts from which to draw advice. Maybe the three you guys you've chatted with in the last decade didn't give the best advice off the top of their head, but I promise you that they would know their shit cold before they put their license on the line by signing your tax return. Also, I really think you're underestimating how prevalent gambling income is. I mean, there's got to be 100 lottery winners in this country every week.

    Also, I don't know Russ so I'm not gonna say anything bad about the guy. But I will point out that by looking at his website, it does not appear he holds a CPA certification. Most "run of the mill" accounts have a piece of paper that says "I know how to do all the tax returns"

    2. That's what I figured. What about casino comps, is that income?

    3. Nothing could be further from the truth. I'm not advising anything illegal. From the OP it appears that he's not even playing yet. He doesn't even know if he's going to win anything. Also, with the state of online poker, winning and getting paid aren't necessarily the same thing. Tax accountants have specific criteria that defines "constructive receipt". I doubt very much that a tournament win deposited into your bovada account would count as "income". You can't hide income that doesn't exist.

    If he plays for the rest of 2016 and shows a profit, does he owe a tax? Probably not. It's probably not income until you cash out. So now if he runs bad in 2017, and gives that profit back, then the wins and the losses cancel each other out in the same tax year, even though the money was earned and lost in different years. What a great country!!

    I'm not saying hide income. I'm saying don't have income. Or move it from one year to another in a LEGAL but advantageous way.

    4. eh...Im pretty sure there's a loophole there. playing may not be illegal, but maybe there's a law against transferring money for the purpose of gambling, or some FCC shit like that. Again, this is a question for an attorney, not an accountant. Also, a tax attorney will advise you on what types of things will get you flagged for an audit. I suspect that foreign money transfers will land you on that list pretty quickly. There is probably a way to simply fold your online gambling winnings into your live winnings without revealing the specific source of each individual dollar.

    Also, not sure why you linked that CNN article. It pretty much says that the IRS will crawl up your cave if they sense something is off.
    For example, the IRS might not be allowed to share the contents of actual tax returns on its own initiative, but it can divulge supplemental information obtained from outside sources -- like witnesses interviewed in an audit investigation -- "to apprise federal criminal law enforcement agencies of possible crimes," according to the agency's guide.
    In practice, Moskowitz says he thinks information about illegal activities gets shared.
    "Do they report you to other agencies?" he asks. "Absolutely."
    Other experts agree.
    "The IRS would most certainly immediately report it to law enforcement," says Joseph Henchman, vice president of legal and state projects at the Tax Foundation, a think tank.
    The IRS' spokesman declined to comment on the issue.
    And my favorite.....
    If you decide to disclose your illegal loot, make sure to do it with the assistance of a tax attorney, not any old accountant.
  • BartBart Posts: 6,077AdministratorLeadPro
    edited July 2016
    1. This has nothing to do with Russ or me plugging him. Throughout the years of my podcast I've spoken about the false information that goes around regarding gambling taxation and how most so called accountants no nothing about the intricacies of filing as a professional gambler. BTW Russ is an EA not a CPA, which in this case for preparing specialized returns is more desirable. Why dont you listen to the last podcast that he has on here? http://www.crushlivepoker.com/podcasts/gambling-taxation

    2. If you are talking about using casino comps to pay for food and things like that that is up for interpretation. Currently the IRS treats money that you get back from credit card points as discounts on purchases, not additional income which makes me think that free food from the casino would be handled the same way.

    3. That's entirely not how the IRS treats gambling income. Money won in a particular year is earned that year. It has nothing to do with when you cash out. Again I am pretty sure that this topic was covered in one of the podcasts.

    4. The article says that the IRS doesnt pass on to other agencies the fact that someone claimed money from illegal sources.

    Banana it seems that most of your logical assumptions with regards to the way gambling income is treated are misguided /flat out incorrect. Hope the "run of the mill" accountant that you recommend doesn't come to your same conclusions.

    Cheers!
  • irwinbetirwinbet Posts: 408Subscriber
    I'm pretty sure you are taxed on the year you actually earn the money, not when you actually receive it. This was an issue for people on black friday when they had to pay taxes on income they were not able to collect. Another example is if you receive paychecks from a regular job. Your payment for the last pay period of the year may cover the last 2 weeks of the year but you probably wouldn't receive it until the start of the next year. It's still taxable in the year earned, not the year payment was received.
    OP, if you're looking for tax advice on this forum I would think Bart is probably the best resource.
    Bart has discussed the issue of taxes on CLP in the past. You can find links to podcasts on that subject here: crushlivepoker.com/podcasts/gambling-taxation#, here: crushlivepoker.com/podcasts/gambling-taxation-part-21 & here: crushlivepoker.com/podcasts/valueowning-taxes
  • irwinbetirwinbet Posts: 408Subscriber
    Looks like Bart beat me to the punch on this one.
  • BananaStandBananaStand Posts: 1,455Troll
    edited July 2016
    Suppose you work at a place that pays you on the first of every month, and you started there in december 2016. Your first paycheck won't come until January 1, 2017. You have no taxable earnings in 2016. Taxes work on a CASH basis for individuals.

    See item 1 in the link below. I come is taxed the year it is RECEIVED. I'm not sure money sitting in an offshore poker site counts as "received". Your accountant may feel differently

    https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Top-8-Year-End-Tax-Tips/INF12120.html

    Also, whatever the difference between EA and CPA, it's easy enough to be both. The fact he isn't is just a little weird, that's all I'm saying.

    In any case, it's clear Bart just wants to shit on me, so I'm done with this thread. If you wanna be Ned Flanders when it comes to your tax return, be my guest
  • BananaStandBananaStand Posts: 1,455Troll
    irwinbet said:
    Your payment for the last pay period of the year may cover the last 2 weeks of the year but you probably wouldn't receive it until the start of the next year. It's still taxable in the year earned, not the year payment was received.
    that question is on the test man. It's not taxable until received
  • ActionTwin Posts: 147SubscriberProfessional
    BananaStand said:


    In any case, it's clear Bart just wants to shit on me, so I'm done with this thread. If you wanna be Ned Flanders when it comes to your tax return, be my guest
    How is Bart "shitting on you" by correcting your inaccuracies and awful advice? With the assistance of my CPA I've been filing my tax returns as a professional gambler since 2012. I can say from that experience that what Bart has said in this thread and on his tax podcasts is right on.

    So if it makes me Ned by filing my tax returns accurately, correctly, and protecting myself in the case of a future audit...then call me Mr. Flanders.
  • ThehammahThehammah Posts: 7,090Subscriber
    not to mention avoiding jail for tax evasion. Understand they never got Al Capone for murder just tax evasion. Also Bart mentioned in a podcast a while ago and I think linked it here about the fallacies of trying to hide poker income and how in the not so long run (maybe even as little as 5 years) you will make back the taxes you saved by not reporting the income. And now you have funds that are legitimate and for the rest of your life can earn you money whereas if you hide a signficant portion of your income you will forever have to hide that amount and it will forever NOT be working for you. Then if you want to say buy a house or a business either you cant because you cant prove this income or you become interesting to the IRS since you have no way of showing how you earned this money.

    anyone suggesting in a forum to commit a felony is definitely not good advice..

  • BananaStandBananaStand Posts: 1,455Troll
    edited July 2016
    No one suggested committing a felony

    There are lots of legal ways to "hide" or "disguise" income, if those are really the words you wanna use.

    Fact: attorneys are more creative than accountants.

    It sounds like the OP has kids. That's great. If I were the OP, I would hire an attorney and start an LLC, or maybe an LLP, an attorney will know which. That LLC would be managed by me, and my kid. I would have 1% ownership as a general partner, and my kid would have 99% ownership as a limited partner. That LLC would then buy a laptop, and make it available for rent.

    Then the OP, personally, can rent that laptop from the LLC and use it to play online poker. Now you have expenses that offset your income

    Poker income for the individual gets transformed into rental income for the LLC. Much less likely to set off audit flags than online poker deposits. And that income is taxed at the owner's personal tax rates. But the 99% owner is a kid in the lowest possible tax bracket. So all this hoop jumping is actually +EV

    That's kind of an extreme example, but it does happen. I've done it for multi-million dollar companies and it's totally legal. I know a 22 year old dental student who owns a factory and two subsidiary distributors. She just gets a check every month for renting her dad's equipment back to him. He's basically using the gov't to subsidize his daughter's medical school. What a country!

    That's the kind of thing I'm talking about. Nothing felonious. A tax ATTORNEY will be able to tell you what kinds of things will get you flagged for an audit. The article that Bart referenced clearly states that if you get audited, then anything the IRS finds is fair-game. I think it would behoove you to avoid sending out those red flags however possible. If you can legally reclassify income, or move it from year to year (you're all dead wrong on the earned vs receipt question), then you should do so.
  • BartBart Posts: 6,077AdministratorLeadPro
    edited July 2016
    Banana you're "dead wrong" when it comes to tax liability from online poker earnings. It's not the same as when you receive a paycheck from your employer where the income is taxed in the year it is actually issued.

    This has been discussed at nauseam around the time of Black Friday with regards to how gambling department at the IRS treats online earned income. This is basically the same as selling stock for a profit in an online brokerage account but not withdrawing it to your bank account. Keeping the $$ in a money market account on the site doesn't relieve you of the tax liability for that particular year.

    Also your schemes of shifting money around in various LLCs sound like nonsense (if not fraudulent) in this particular situation. If you file as a professional player you will file a schedule C and will be able to take all the normal business deductions of any other business. You will also have to pay 15.3% SE tax just like any other schedule C. So if I "lease" a laptop from another entity yes I can take a business deduction for that but the other entity will have to claim the lease as business income. Also the expenses don't offset the income in the sense that the income is 0, the expenses may reduce the tax liability such that the net is 0, but the income still has to be claimed, as does the source.

    You can in certain states (california not being one of them) set up a corporation in the business of gambling that can pay yourself a salary. But there is much more that goes into that than meets the eye and is not worth the $$ for 99.9% of players.

    Bart
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